April 29, 2018
We all know that the overall goal of planning our taxes, is to pay the minimum amount that we are legally required to, but if you’re a business owner, be warned that any actions you take to reduce your taxes, will have effect upon the book value of your assets. It’s important that you think long and hard about what might be best for your business in the long term, instead of simply focusing upon reducing your taxes each year.
If you’re a first-time business owner struggling to plan your taxes, here are a few words of advice:
Always distinguish between your business and personal expenses:
The importance of keeping your business and personal expenses separate, cannot be stressed enough. Blurring the lines between the two can set of warning signals to the IRS. They need to see that your business is in fact, a business, and when your personal expenses are mixed in with your business expenses, it may appear to the IRS that you are conducting a hobby instead. This would go on to prevent you from being allowed to deduct your business expenses from your income.
To make sure this doesn’t happen, simply maintain separate bank accounts and credit cards and keep your records up to date.
Maintain your records:
Being able to justify your deductions can only happen if you maintain good and thorough documentation, and listed below are some of the common deductions available to small business owners:
Review your accounts receivable and inventory balances:
Be sure to review your accounts receivable for collectability, before you close your year end books; accounts that are likely to be uncollectible need to be written off as it will minimize your revenue and your tax liability. Obsolete or unusable inventory should be written down to scrap value to help lower revenues and your final tax bill.
Could you be owed tax credits?
There are several tax credits that you may be eligible for, such as ‘research and development credit’, ‘energy tax credit’, ‘disabled access credit work’, ‘work opportunity tax credit’ and ‘healthcare tax credits’.
When you file your taxes for the first time as a business owner, you may make mistakes and will be able to note areas in which you lacked documentation or found a way in which to lower your taxes for the next year. Remember all of these and implement the necessary changes well in time for the next years’ tax season.
Whether you’re a seasoned tax planner or a first-timer with a business, accurate records and timeliness are essential, and if you struggle with this as many business owners do, it’s best to use the services of a tax consultant to be sure to stay on the right side of the IRS and get all the tax breaks that are available to you.
All small businesses will go through a series of ups and downs, and solving some of the problems that can arise, takes time and patience. Most owners of small businesses complain of not having enough time to do everything that is required of them, but finding time to update the books so that their bookkeeper can do their job efficiently, is one thing business...
For many small businesses, keeping track of, and managing their taxes is a yearlong commitment, and there are several important types of deadlines to be aware of throughout the financial year:
1099 forms for contractors, need to be in the mail by the end of January, and must be...
With April 15th very definitely behind us, most US citizens who didn’t file for an extension, have filed their taxes successfully, either alone or with the help of a tax professional. Many folks will be disappointed to discover that they owe taxes, while others will be pleasantly surprised with a refund.
Tax refunds can...